an economics scrapbook

The face of the river, in time, became a wonderful book . . . which told its mind to me without reserve, delivering its most cherished secrets as clearly as if it had uttered them with a voice.
-- Mark Twain

China is in the midst of a huge housing bubble. Their bubble currently measures 6% of GDP, which was the peak size of the bubble we just experienced in the US. Housing mania has been a global phenomenon. Bubbles in some countries have popped already, while some are still inflating. All are nearing an end and will pop eventually. One sign of distress in the Chinese housing market is the number of vacant residences, which by some estimates tops 64 million.

An empty road winds to nowhere before the vacant residential towers of Zhengzhou New Destrict.

In China people wanting to invest have very few options. The interest on Chinese savings accounts does not keep up with inflation. The stock market there is not stable or accessible. Many who can afford to have instead flocked to invest in residential real estate. This has contributed to the growth of a bubble, while making housing less and less affordable for the Chinese middle and lower classes. A square meter of residential property in Beijing costs an average of 26,000 yuan, but the average per capita monthly income is only 2,000 yuan. The average Beijing resident would have to spend his or her entire yearly income just to buy ten square feet of residential property. There is a huge demand from investors to build, but shrinking demand from residents to buy. What we are seeing as a result is malinvestment in real estate and related infrastructure with whole brand new cities sitting vacant, some of which having been built in some of the least hospitable areas of the country.

Recently I came across some stunning satellite images of China’s ghost cities at the Business Insider website. The scope of the situation is vast. (Click on any of the images to see larger.) Ordos is China’s most famous ghost city. There are no cars to be seen, save a couple dozen parked around the government center which has been glamorously landscaped and maintained.

A beautiful modern art museum sits at the heart of Ordos, totally empty.

China’s largest ghost city is the Zhengzhou New District.

The development, which cost 19 billion dollars, features blocks and blocks of houses and glamorous public buildings all sitting empty. There are no cars or people on the streets.

The city of Erenhot, Xilin Goi, was built in the middle of a desert in Inner Mongolia. Half sits empty, while the other half remains unfinished.

This giant development to the north-east of the Xinyang does not have a name. In the photograph it is identifiable due to the orange color of the exposed earth there.

There are no cars in this city except for maybe a hundred or so parked around the government headquarters.

The city of Dantu has been virtually uninhabited for over a decade. As in the other ghost cities there are no cars or people in the areal images.

The city of Bayannao’er features a beautiful town hall and a World Bank sponsored water reclamation building, but few signs of life.

Kangbashi is a new city with the capacity for housing 300,000 residents. It is home to 30,000.

The giant new campus for Yunnan University was built to accommodate 2.3 million students. Now that’s a big school! However, only 11,000 students are currently enrolled.

China has a population large enough to fill its vacant homes, only no one can afford to buy them and many are in areas that are not viable. In the meantime, the Chinese government announced earlier this month it is going to invest another $200 billion in building homes people can actually afford. This is in response to the problem of rising real estate costs as well as stubbornly high consumer costs and growing income disparity, which leaders believe could lead to social unrest. With the government stepping in to build affordable housing we are sure to see these ghost cities fade even further into obscurity.